Scotiabank Inks Outsourcing Deal With IBM

Concerns over the ability to attract top IT talent and keep pace with technological developments prompted Scotiabank to outsource itsCanadian computer operations to IBM Canada Global Services. IBM will be responsible for the computer operations that drive the Canadian data centers, branches, automated banking machines and desktop computers for 24,000 of Scotiabank's 52,000 employees.

Under the deal, Scotiabank, which has more than C$273 billion in assets and is Canada's third largest bank, will transfer 450 Toronto-based employees to IBM. A core group of about 60 IT staff will stay close to the bank's main operations. The rest will be deployed at another Toronto facility. The bank will retain "ownership for the overall architectural direction" of its systems, said Penny Mulligan, executive vice president, systems and operations at Scotiabank, adding that IBM will "bring ideas to us."

The deal is valued at US$600 million and will run for seven years. Scotiabank expects to reduce its IT costs by about 10%. There are no plans to extend it to cover the bank's vast foreign operations.

A shortage of skilled talent was a major factor in the bank's decision, which was made last September. "If you really look at the way the world is going now, companies like IBM are the ones that are going to attract the best technical people. They have the dollars that they are willing to invest in research and development," said Mulligan.

Noting that the deal is more of a partnership than an outsourcing, Mulligan said, "Scotiabank's core business is being a bank. Partnering with a provider of IBM's quality gives me access to the skills I need to advance the banking proposition overall."

She added that Scotiabank is "looking forward to the partnership giving us all tremendous value going forward."

IBM beat out EDS Canada for the contract, one of the first involving Canada's Big Five banks. Others could follow as most of the banks are looking to cut hundreds of millions of dollars from their expense sheets.

Mulligan hired Technology Partners International to assist in the review process, evaluate the sourcing offers and negotiate the details. Scotiabank quickly short-listed two firms and entered a period of due diligence, interviewing a number of financial institutions that had undergone a similar process. They included a bank in Australia, whose banking structure is similar to Canada's.

IBM's substantial commitment to research and development and its reach into the financial services sector impressed the bank. "They were incredibly responsive to our needs and demonstrated good partnering right from the get go," said Mulligan.

One of the challenges of such a massive project is managing employee communications. Many employees were concerned about their jobs and the impact the shift would have on their futures.

To placate those worries, the bank set up an employee Web site to field questions and provide answers. Competing firms were also invited in to speak to employees before a decision was made.

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2001 CMP Media LLC. 7/1/01, Issue # 3807, page 18.